Bernanke details outlook for economy

David Gura Sep 8, 2011

Bernanke details outlook for economy

David Gura Sep 8, 2011

Kai Ryssdal: Ben Bernanke went to Minneapolis today for his speech. It was yet another chance for economists and investors and business journalists to read the tea leaves and get a sense of what the Fed chairman’s thinking.

Because of the two — the president and Ben Bernanke — Bernanke’s the guy who’ll have an easier time actually getting something done. Marketplace’s David Gura reports.

David Gura: When the Fed chairman speaks, there’s no shortage of scintillating sound bites.

Ben Bernanke: In addition to refining our forward guidance, the Federal Reserve has a range of tools that could be used to provide additional monetary stimulus.

That’s Ben Bernanke all but saying the Fed could intervene in the economy some more. Economists say the Federal Reserve might do something more radical to get money circulating.

Economist Kevin Jacques teaches at Baldwin Wallace College.

Kevin Jacques: The Federal Reserve would start to buy more and more long-term bonds: 10-, 20-, 30-year bonds.

And it would start to sell off short-term bonds.

Jacques: What that would do is drive bond prices up and push those interest rates down.

Below the really, really low rates we have right now.

Dean Maki is chief economist at Barclays Capital. He says then, investors might move into stocks.

Dean Maki: Presumably that will push them either to go out into riskier assets, or to spend that money.

The Federal Reserve’s got a second option. It could cut the interest it pays banks on trillions of dollars they stash at the Fed. It’s at a quarter of a percent, and Kevin Jacques says right now, that’s a pretty good return.

Jacques: If I am a bank, and I have reason to believe I may need liquidity, and the central bank — the Federal Reserve — is paying me to keep the money as opposed to lending it out, then I have a financial incentive to keep more money than I otherwise would.

Without that incentive, banks would have to look for something else to do with all that money. They might just start lending it to businesses and folks like you and me.

In Washington, I’m David Gura for Marketplace.

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